Thursday, September 13, 2012

Jessie Romero of the Richmond Fed analyzes why so many people are leaving the labor force, and
what they are doing after they exit:

Where Have All the Workers Gone?, by Jessie Romero, Richmond Fed: Since September of last year, the unemployment rate in the United States has
declined nearly a full percentage point, from 9 percent to 8.3 percent. On its
face, this is an encouraging signal about the health of the labor market. But
some of the change is due to a potentially troubling trend: a dramatic decline
in the number of Americans who are part of the labor force. Prior to the
recession, 66 percent of the population (not counting active duty military or
people in a nursing home or in prison) over the age of 16 was in the labor
force. Just four years later, this rate — known as the “labor force
participation rate,” or LFPR — has fallen to 63.7 percent. While this might not
sound like a large decline, it is unprecedented in the postwar era. The dropoff
is all the more striking because it does not include unemployed workers who are
actively seeking work; such workers are still considered to be part of the labor
force. It is only when the unemployed decide to stop looking for jobs, perhaps
because they have given up on the possibility of finding one, that they are
considered out of the labor force...

The current low labor force participation rate is the result of both long-term
structural changes, such as an aging population and decreased demand for
low-skill workers, and cyclical factors, namely the lingering effects of the
2007-09 recession. ... But it’s difficult to discern the impact of the business
cycle relative to structural change. “The certain answer I can give you is that
they’re both playing a role. If you want me to divide it proportionally and say
how important is each, that’s where it becomes much, much more difficult,” says
Betsey Stevenson... A recent report by Dean Maki, an economist at Barclays
Capital, argued that only about one-third of the recent decline in the LFPR is
due to the weak labor market, with the rest due to demographic factors.
Economist Willem Van Zandweghe at the Kansas City Fed found that the split is
closer to 50-50, as did economists at the Chicago Fed. Van Zandweghe used a
model in which the overall unemployment rate is the primary cyclical indicator.
When he altered the model to include the long-term unemployment rate, which
might be a better gauge of labor market weakness, he found that cyclical factors
could explain as much as 90 percent of the decline in the LFPR.

Whatever the research eventually shows, the fact remains that millions of people
who would like to be working have given up trying to find a job. According to
the monthly Current Population Survey (CPS) conducted by the BLS, the share of
workers not in the labor force who report that they want a job ... [is] 6.8
million workers. “There’s a large group of people who are counted as out of the
labor force who we should be trying to find jobs for, and who would want jobs if
they were available,” says Rothstein. ... [much
more here, including what the workers are doing after they leave the labor force] ...

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'Where Have All the Workers Gone?'

Jessie Romero of the Richmond Fed analyzes why so many people are leaving the labor force, and
what they are doing after they exit:

Where Have All the Workers Gone?, by Jessie Romero, Richmond Fed: Since September of last year, the unemployment rate in the United States has
declined nearly a full percentage point, from 9 percent to 8.3 percent. On its
face, this is an encouraging signal about the health of the labor market. But
some of the change is due to a potentially troubling trend: a dramatic decline
in the number of Americans who are part of the labor force. Prior to the
recession, 66 percent of the population (not counting active duty military or
people in a nursing home or in prison) over the age of 16 was in the labor
force. Just four years later, this rate — known as the “labor force
participation rate,” or LFPR — has fallen to 63.7 percent. While this might not
sound like a large decline, it is unprecedented in the postwar era. The dropoff
is all the more striking because it does not include unemployed workers who are
actively seeking work; such workers are still considered to be part of the labor
force. It is only when the unemployed decide to stop looking for jobs, perhaps
because they have given up on the possibility of finding one, that they are
considered out of the labor force...

The current low labor force participation rate is the result of both long-term
structural changes, such as an aging population and decreased demand for
low-skill workers, and cyclical factors, namely the lingering effects of the
2007-09 recession. ... But it’s difficult to discern the impact of the business
cycle relative to structural change. “The certain answer I can give you is that
they’re both playing a role. If you want me to divide it proportionally and say
how important is each, that’s where it becomes much, much more difficult,” says
Betsey Stevenson... A recent report by Dean Maki, an economist at Barclays
Capital, argued that only about one-third of the recent decline in the LFPR is
due to the weak labor market, with the rest due to demographic factors.
Economist Willem Van Zandweghe at the Kansas City Fed found that the split is
closer to 50-50, as did economists at the Chicago Fed. Van Zandweghe used a
model in which the overall unemployment rate is the primary cyclical indicator.
When he altered the model to include the long-term unemployment rate, which
might be a better gauge of labor market weakness, he found that cyclical factors
could explain as much as 90 percent of the decline in the LFPR.

Whatever the research eventually shows, the fact remains that millions of people
who would like to be working have given up trying to find a job. According to
the monthly Current Population Survey (CPS) conducted by the BLS, the share of
workers not in the labor force who report that they want a job ... [is] 6.8
million workers. “There’s a large group of people who are counted as out of the
labor force who we should be trying to find jobs for, and who would want jobs if
they were available,” says Rothstein. ... [much
more here, including what the workers are doing after they leave the labor force] ...